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Those hoping for the US economy to accelerate in the second half
- and many economists made that call early in the year - will be
disappointed. While employment metrics seem to show steady
improvements, putting the Fed on the "taper path", the economy is
facing some increasing headwinds. Here are four indicators
signaling a tough road ahead.

1. The rate of improvement in the housing sector is slowing. Weak
new home sales number was the first indication that not all is
well with US housing (discussed here), but now home
price increases (HPI) have leveled off. This trend may actually
take MBS off the table for the Fed's taper, leaving the central
bank to focus on cutting back only the treasury purchases.

SoberLook

TD Economics: - To make matters worse, the rapid recovery in the
housing market seems to have hit a snag. Rapidly rising mortgage
rates resulting from taper-talk may already be showing up. Both
new and pending home sales have declined in July. Moreover,
measures of home price growth failed to accelerate in June,
although it remains unclear whether due to higher rates or
increasing inventory of properties for sale.

2. Personal income growth remains weak.

NY Times: - After rising 0.3
percent in June, income was held back in part by steep government
spending cuts that reduced federal workers’ salaries. Overall
wages and salaries tumbled $21.8 billion from June, with a third
of the decline coming from forced furloughs of federal workers.

3. Growth in consumer spending (which represents over 70% of the
GDP) has slowed as well.

SoberLook

WSJ: - A paltry increase in
consumer spending in July showed the U.S. economy starting the
second half of the year on a bumpy path, creating another risk to
growth along with overseas turmoil and Washington budget
battles.

U.S. personal spending on everything from cars to clothing rose a
mild 0.1% in July from a month earlier, the weakest since April,
the Commerce Department said Friday. Overall incomes improved
slightly, but wages and salaries fell 0.3%, pushed down by
federal spending cuts that spurred furloughs across the
government.

Americans' willingness to open their wallets has been a key
driver of the recovery for years, despite still-high unemployment
and stagnant wages. Better-than-expected growth in the second
quarter—the economy expanded at a 2.5% annualized pace—was
largely due to strong consumer spending, which represents more
than two-thirds of demand in the U.S. economy.

But the latest data showed that consumers entered the third
quarter with a thud.

4. As discussed earlier (see post), consumer confidence
has peaked in the second quarter and has been declining steadily
since. What's particularly troubling is that according to Gallup
polling right before this weekend, economic confidence index
suddenly dove to the lowest level since the sequester went into
effect in March. The uncertainty related to the Syrian crisis and
potential US military involvement is one potential explanation.